What are residuals and how do they work? A Hollywood strike battleground, explained

Brian Contreras, Los Angeles Times on

Published in Business News

It's not often that people get fired up over nitty-gritty financial mechanisms — but for the last 4½ months on the streets of Hollywood, that's exactly what's been happening.

As members of the Writers Guild of America and performers union SAG-AFTRA march down picket lines and shutter studio productions, a major focus of their ire has been the system of payouts that writers and actors earn when a project they've worked on gets replayed.

These residuals, as they're known, are less flashy than some of the unions' other priorities, such as artificial intelligence.

Yet the importance of residuals to showbiz employees' wallets is direct and undeniable. The checks can be comically small — getting one worth less than a dollar will earn you a drink at Studio City's aptly named Residuals Tavern — and entertainment workers say the industry's pivot toward streaming has made them particularly unreliable.

"I don't get a piece from Netflix on 'Breaking Bad' to be totally honest," said Aaron Paul, co-star of the wildly popular AMC drama, which found an expanded audience thanks to Netflix. "A lot of these streamers, they know they have been getting away with not paying people (a) fair wage and now it's time to pony up."

With no end to the strikes in sight, understanding residuals is key to understanding the divide between Hollywood's labor and management.


So what are residuals, anyway?

Residuals are payments a writer, actor or director can earn when their work gets reused: for instance, if a movie featuring them airs on cable or a show they wrote finds a second life on streaming. Physical media sales, such as DVDs, as well as in-flight movies and digital rentals can also bring in residuals.

"After the initial exhibition of whatever the work is — whether it's theatrical or on television — any subsequent use of the work generates a residual," said Joshua Edwards, a partner and entertainment lawyer at Fox Rothschild LLP. As the content moves through subsequent stages of distribution, Edwards added, each new market triggers additional payments.

Not everyone who works on a show or movie gets residuals. The WGA says writing residuals are only for credited writers, while SAG-AFTRA extends them to "principal" performers, including actors as well as stunt artists, pilots and puppeteers. Background actors aren't eligible.


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